July 31 (Bloomberg) -- The world’s largest economy will
probably keep cooling in the third quarter as a lack of jobs
prompts American consumers to rein in spending.

The economy in the U.S. grew at a slower-than-forecast 2.4
percent annual rate from April through June after expanding at a
3.7 percent pace in the previous three months, Commerce
Department figures showed yesterday. Household purchases climbed
at a 1.6 percent rate following a 1.9 percent first-quarter gain
that was smaller than previously estimated.

“The economy is still struggling to gain traction,” David
Resler, chief economist at Nomura Securities International Inc.
in New York, said in an interview. “Consumers are going to be
very cautious about spending, especially about big-ticket
items.”

Growth in the past three months was supported by increases
in inventories, home construction, business investment and
government spending that may not be matched this quarter. The
pace of recovery in the first half of the year kept unemployment
hovering near 10 percent, raising the risk that household
purchases will not rebound.

Nomura’s Resler forecasts the economy will expand at a 1.7
percent pace from July through September.

Most stocks climbed yesterday as better-than-projected
earnings overcame concerns the economy will slow. The Standard &
Poor’s 500 Index were little changed to 1,101.6 at the 4 p.m.
close in New York.

Deeper Slump

The worst U.S. recession since the 1930s was even deeper
than previously estimated, reflecting bigger slumps in consumer
spending and housing, according to the Commerce Department’s
annual revisions also issued yesterday.

The economy shrank 4.1 percent from the fourth quarter of
2007 to the second quarter of 2009, compared with the 3.7
percent drop previously on the books, the report showed.
Household spending fell 1.2 percent in 2009, twice as much as
previously projected and the biggest decline since 1942.

“The typical pattern is to snap back hard and you just
haven’t done that,” Jay Feldman, an economist at Credit Suisse
in New York, said in an interview. “We’re not calling for a
double-dip, it’s a moderate recovery. Things will appear to be
slowing.”

Credit Suisse forecasts growth will average 2.75 percent in
the second half of the year, compared with 3.1 percent for the
first six months.

Below-Average Rebound

Over the past 12 months, the economy grew 3.2 percent. The
first years of recoveries from recessions in the mid 1970s and
early 1980s averaged 7 percent, Feldman said.

Economists at HSBC Securities USA Inc. in New York forecast
average growth of 2 percent from July through December, while
the Conference Board, a New York-based research group projects
1.6 percent.

The trade gap in the second quarter widened to $425.9
billion from $338.4 billion, subtracting 2.8 percentage points
from growth, the biggest reduction since 1982, yesterday’s
report showed. Imports grew at a 29 percent pace, while exports
climbed 10 percent.

Residential construction climbed at a 28 percent pace last
quarter, the biggest gain since 1983, rebounding from a weather-related first-quarter slump and supported by a government
homebuyer tax credit. The expiration of the incentive has caused
sales to slump, indicating the industry will weigh on growth for
the rest of the year.

More Inventories

The buildup of inventories may also represent an economic
stumbling block. Stockpiles climbed at a $75.7 billion annual
pace last quarter, the biggest gain in more than four years.
Without a pickup in consumer spending, inventories are not
likely to repeat that performance, according to Joel Naroff,
president of Naroff Economic Advisors Inc. in Holland,
Pennsylvania.

Similarly, a 22 percent surge in business investment, the
biggest advance since 1997, isn’t sustainable, he said.

“Businesses are pretty much at the point where they will
only add to inventories at a replacement basis rather than a
rebuilding basis,” Naroff said in an interview. “Once they
finish investing in equipment and make all the adjustment in
inventories, now they are back to fundamentals. There is nothing
there that tells me the rest of this year will be anything
special.”

Better Outlook

Not all economists are convinced the outlook is as dour.

“We find some constructive takeaways for the prospects for
growth in the second half of the year,” John Ryding, chief
economist at RDQ Economics in New York, said in a note to
clients. “The recovery has been less dependent on consumer
spending than we had thought.”

Also, stockpiles are near record lows compared to sales,
indicating companies have not overbuilt, while orders for
durable goods indicate business investment “appears to be
ramping up,” said Ryding.

The Institute for Supply Management-Chicago Inc. said
yesterday its business barometer rose to 62.3 this month,
exceeding the median forecast of economists surveyed by
Bloomberg. Figures greater than 50 signal expansion and the
group’s employment and new orders gauges rose as well.

Americans are also cleaning up their balance sheet, putting
themselves in a better position to spend, Ryding said.

The consumer savings rate has been rising, indicating
“consumers may be in better financial shape, and if that’s the
case, we’re likely to get a little bit of a pickup in consumer
spending growth,” he said.